In the insurance industry mortality tables (also known as life tables or actuarial tables) are tables that show, for a person at each age, what the probability is that the person will die before the person's next birthday. Mortality tables are created by looking at large groups of people and determining the probability of people within a group dying within a year. Mortality tables can reflect the probability of surviving any particular year of age, the remaining life expectancy for people of various ages, the proportion of the original birth cohort still alive and estimates of a cohort's longevity characteristics, among other factors.
Historically, mortality tables have been created primarily by age and sex for whole societies, but for insurance purposes mortality tables may be divided by underwriting class. Common naming would split people first between classes of smoking and non-smoking, then between a preferred class, a standard class, a sub-standard class and finally a “decline” class representing people who would not be insured at all. Preferred classes represent people whose health and fitness are above average and would have a better than average expected mortality. Standard classes represent people with average health and builds. Substandard classes represent people with known health problems or other physical problems that would predict a poorer expected mortality. The decline class represents those people having a severe health problem that renders their mortality very high or very unpredictable. Sometimes a “deferred” class is used in place of “decline” for people who are recovering from a problem where a good outcome would make them insurable after a period of time.
Insurance policies are underwritten at policy inception. Underwriting refers to the process that an insurance company uses to determine the eligibility of a customer to receive its products. Insurance underwriters evaluate the risk and exposures of the prospective clients and determine how much coverage the clients should receive, how much they should pay for it, and even if they should insure the client in the first place. Underwriting involves measuring risk exposure and determining the premium necessary to insure that risk.